Change in valuation interest rate

[Blinky the 3-eyed Fish]

I am curious if there are different opinions on this question. If a change in pre-retirement interest from the previous valuation is made, do you think that interest rate is in effect for the entire plan year or starting with the valuation date? I understand it's a moot question for a BOY valuation date.

But for an EOY valuation it does have an effect, so I am curious if everyone has the same opinion. I will withhold my opinion for now.

[david rigby]

Gray Book 2006-6

Funding: End of Year Valuation Dates

A calendar year plan has a valuation date that is the last day of the plan year. If the valuation interest assumption is changed for the 12/31/2005 valuation, what interest rate is used to roll forward the credit balance and amortization bases from 12/31/2004: the 2004 interest rate or the 2005 interest rate?

RESPONSE

The 2005 interest rate is used. The change in interest rate applies for the entire plan year.

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BTW, I agree with the IRS opinion here.

[Blinky the 3-eyed Fish]

This is how I do it as well, but I was seeing if others did it differently. Does anyone still care to admit they do it differently despite the unofficial opinion?

[david rigby]

Blinky, do you agree that supporting the other position would be difficult, algebraically?

For example, think about the perspective of determining an amortization payment, rather than the simple process of rolling forward the CB. Determine that payment with two different interest rates?

[AndyH]

I thought that people with white robes throw nets at people that still do end of year valuations.

[SoCalActuary]

For the majority of the small plans I handled last year, End Of Year Valuation

For the majority of the larger plans, Beg Year Valuation.

For the pre-retirement interest rate, I practice on the basis that

the selected pre-retirement rate applies for the entire year.

Even if we get stuck with the graded rates of proposed pension reform, there will

still be a single interest rate for maintenance of bases, FSA and reconciliation accts.

[zimbo]

I am curious if there are different opinions on this question. If a change in pre-retirement interest from the previous valuation is made, do you think that interest rate is in effect for the entire plan year or starting with the valuation date? I understand it's a moot question for a BOY valuation date.

But for an EOY valuation it does have an effect, so I am curious if everyone has the same opinion. I will withhold my opinion for now.

I have always believed that the change in rate is for the entire year rather than just as of the val date. I know that there are differing opinions on this. For example, I believe that Relius DB software, treats the change as occuring only on the val date, so contribution made during the plan year are credited at the old val interest rate. Don't know if there is any definitive guidance though.